Estes v. Comm'r of Internal Revenue (In re Estate of Miller)

• Decision Date: 31 July 1972
• Docket Number: Docket No. 4312-70.
• Citation: 58 T.C. 699
• Parties: ESTATE OF EVA M. MILLER, DECEASED, JOHN L. ESTES, ADMINISTRATOR CUM TESTAMENTO ANNEXO, AND CHARLES R. MILLER, EXECUTOR, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

58 T.C. 699

ESTATE OF EVA M. MILLER, DECEASED, JOHN L. ESTES, ADMINISTRATOR CUM TESTAMENTO ANNEXO, AND CHARLES R. MILLER, EXECUTOR, PETITIONERS

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 4312-70.

United States Tax Court

Filed July 31, 1972.

Milton F. Cooney, for the petitioners.

Gary F. Walker, for the respondent.

1. Held, the amount of an unclaimed bequest, includable in decedent's gross estate under section 2033, I.R.C. 1954, determined.

2. Decedent was predeceased by her husband. The husband's will divided his estate into two portions. The first portion, Share A, was bequeathed to decedent outright, unreduced by expenses. The second portion, Share B, was first to bear the expenses of administration and then to be placed in trust with the income payable to decedent for life, the remainder payable to others. Under Florida law decedent was entitled to the net income earned by her husband's estate during the administration except for income earned on assets which should have been used to pay administration expenses. Held, by not claiming the income and permitting it to be used for administration expenses, decedent effectively transferred income to the corpus of the testamentary trust of which she was life beneficiary thereby making a transfer with a retained life estate includable in her gross estate under sec. 2036, I.R.C. 1954.

3. Held, the amount includable in decedent's gross estate under sec. 2036, I.R.C. 1954, determined.

STERRETT, Judge:

Respondent determined a deficiency of $35,917.94 in the estate tax due from the Estate of Eva M. Miller, deceased. This Court is to decide whether there is includable in the above-named estate, under section 2033,¹ an unpaid bequest from the deceased's husband. We must also decide whether the income generated and retained by the husband's estate and a testamentary trust established thereunder was payable to Eva M. Miller, and, if so, whether Eva M. Miller in effect made a transfer of such income within the meaning of section 2036 and 2038.

FINDINGS OF FACT

All of the facts have been stipulated. The stipulation of facts and the exhibits attached thereto are incorporated herein by this reference.²

Petitioners are John L. Estes and Charles R. Miller, who are administrator c.t.a. and executor, respectively, for the Estate of Eva M. Miller, deceased. At the time of filing the petition herein John Estes was a resident of Clearwater, Fla., and Charles R. Miller was a resident of Pontiac, Mich.

Eva M. Miller (hereinafter referred to as Eva) died in Pontiac, Mich., on February 9, 1966, at the age of 76. A Federal estate tax re urn was filed with the district director of internal revenue, Jacksonville, Fla., on or before May 5, 1967.

Eva's husband, Charles O. Miller (hereinafter referred to as the husband or testator), predeceased Eva on September 29, 1961. Charles O. Miller died testate, and his will was filed for probate in the Court of County Judge In And For Pinellas County at Clearwater, Fla. In addition, an ancillary proceeding was filed in the Probate Court for Oakland County at Pontiac, Mich. Eva was appointed executrix for the Florida probate proceeding and Charles R. Miller was appointed administrator with will attached in the Michigan ancillary proceeding. Prior to her death, Eva had been appointed, by the appropriate courts in Florida and Michigan, as cotrustee of a trust established by the will of Charles O. Miller. Eva held the positions of executrix of the Florida estate and cotrustee of the trust until her death.

Those segments of Charles O. Miller's will, executed November 16, 1959, relevant to the present case state as follows:

FIRST

I direct that all my just debts and costs of administration of my estate be paid by my Executrix, hereinafter named, as soon as convenient after my death. I further direct that any and all estate and inheritance taxes shall be payable from the residuum of my estate, provided, however, that if my wife, EVA M. MILLER, survives me, the same shall be payable solely out of Share ‘B’ as hereinafter provided.

SECOND

I hereby give and devise Lot 72, Shore Acres Subdivision, situate in Novi Township, Oakland County, Michigan, to my Trustees, hereinafter named, SUBJECT, HOWEVER, to a life estate in my brother, PHILEMON J. MILLER, for and during the term of his natural life ONLY; it being my will that my brother, Philemon J. Miller, shall have the income from the above described real estate for and during the term of his natural life.

THIRD

Provided that my wife, EVA M. MILLER, survives me, all the rest, residue and remainder of my estate shall be divided into two (2) equal shares hereinafter called ‘A’ and ‘B,‘ which I dispose of as follows:

1. I give, devise and bequeath Share ‘A’ to my wife, EVA M. MILLER, to be hers absolutely.

2a. Out of Share ‘B’ there shall first be payable any and all expenses of my estate including but not limited to, all estate and inheritance taxes which may accrue by reason of my death.

2b. The remainder of Share ‘B’ after payment of the items specified in 2a of this Paragraph, I give, devise and bequeath to my Trustees, hereinafter named, to be held in trust upon the following terms and conditions, to-wit:

i. During the life of my wife, EVA M. MILLER, to pay to her all of the income of this trust.

iii. During the life of my wife, EVA M. MILLER, I empower my co-trustee CHARLES R. MILLER, acting alone as such co-Trustee, to pay to my said wife, Eva M. Miller, such part or parts of the principal as my said co-Trustee, Charles R. Miller, may determine to be necessary to be paid to her for her care, maintenance and support, in addition to any other income she may have from any other source whatsoever. My said wife, Eva M. Miller, shall have no power or right to invade the corpus of this trust, either by her own act as Trustee, or by her acting jointly as Trustee with my co-Trustee, Charles R. Miller. 3a. Upon the death of my wife, EVA M. MILLER, this trust shall terminate as to a two-thirds (2/3) part thereof and I direct my remaining Trustee to distribute two-thirds (2/3) of the principal of this trust, including any and all accumulated and undistributed income to the aforesaid CHARLES R. MILLER and PHYLLIS A. THOMPSON. * * *

3b. Commencing immediately upon the death of my wife, EVA M. MILLER, I direct my remaining Trustee to pay to my brother, PHILEMON J. MILLER, the income from the remainder of one-third (1/3) of the trust for and during the term of his natural life.

3c. Upon the death of my brother, PHILEMON J. MILLER, the remainder of this trust shall terminate and I direct my remaining Trustee to distribute all amounts held by him, including principal and accumulated income then held by him, to the aforesaid Charles R. Miller and Phyllis A. Thompson. * * *

FOURTH

I nominate, constitute and appoint my wife, EVA M. MILLER, and the aforesaid CHARLES R. MILLER, to be the Trustees of the trust created in Paragraph THIRD of this, my Last Will and Testament, granting unto my said Trustees full power to do everything in the administration of the trust that they deem to be for the best interest of the beneficiaries, specifically including the following:

(a) All of the powers granted to Trustees by the statutes of the State of Florida.

(c) I direct my Trustees to retain all of the General Motors Corporation stock, common or preferred, received by them as such Trustees under this, my Last Will and Testament, until the trust herein created is terminated, and such retention shall be mandatory under the terms of this trust.

(e) To apply any sum of income or principal payable to the life beneficiary of the trust who, in the judgment of my Trustees, is incapable of making a proper disposition thereof by any one or more of the following methods:

(1) By payments on behalf of the beneficiary to anyone with whom the beneficiary resides.

(2) By payments in discharge of the beneficiary's bills or debts.

(3) All without regard to other resources of the beneficiary and without like fiduciary, or without obligation to see to the further application thereof.

SIXTH

In the event my wife, EVA M. MILLER, does not survive me, then I give, devise and bequeath all the rest, residue and remainder of my estate, * * * to the aforesaid CHARLES R. MILLER and PHYLLIS A. THOMPSON, in equal shares, share and share alike. * * *

SEVENTH

I hereby nominate, constitute and appoint my wife, EVA M. MILLER, as Executrix * * * .

I hereby give and grant unto my said Executrix full power and authority to sell and dispose either at public or private sale, all my property * * * without obtaining an order of the Court, the said sale to be made by my Executrix at such price and upon such terms and conditions as my Executrix shall, in her discretion, determine to be for the best interest of my estate.

The fiduciaries for the Charles O. Miller estate in Florida and in Michigan inventoried his probate assets at a total value of $1,275,199. The inventory filed with the Florida probate court reflected the decedent's personal property and the inventory filed with the Michigan probate court his real property. Based upon an income tax return filed for the taxable period ending with Charles O. Miller's death, the estate of Charles O. Miller in 1962 received an income tax refund in the amount of $6,808.62. Although the amount of the refund was treated as an asset in the estate of Charles O. Miller, it was not accounted for in the inventoried assets as of September 29, 1961. The total probate value of the estate of Charles O. Miller at his date of death, including the total inventory and the tax refund, was $1,282,007.62.

On March 30, 1965, Eva filed in the Court of County Judge a final return and proposed plan of distribution for the Charles O. Miller Florida estate. The final accounting was approved in an order of the Court of County Judge dated May 10, 1965, and the proposed distribution was approved in an order dated July 1, 1965. In the...